“How will support be calculated?” This is one of the first questions asked by divorcing clients. When family law attorneys are working with their clients to assess the support issue (either to present the issue to the court or for purposes of settlement negotiations), the income of each party is a major item to be plugged into the support calculations. (Note: “support” may include two discrete components: child support, which is support for the children of the marriage, and spousal support, which is support for an economically-dependent spouse.)
“Income” is broadly and inclusively defined in the statutes of Virginia, Maryland and the District of Columbia. It includes investment income, payments from pensions, severance pay, etc. But the income earned from employment or a party’s business is often the most significant part of income when support is being calculated.
When a party is a W-2 wage earner (that is, an employee who receives a regular monthly or bi-weekly paycheck), calculating earned income is straightforward. However, some parties have inconsistent or irregular income during a given year which might be reflected on 1099s or K-1s. This may be due to signing or year-end-bonuses or to income flows based on performance for specific deliverables. Occupations such as realtors, attorneys, consultants, investment managers, and commission-based salespeople typically are compensated in fluctuating amounts.
Courts generally order both child support and alimony awards in fixed monthly amounts. This practice makes sense for the support-receiving party because he or she typically has many fixed expenses each month – mortgage, utilities, car insurance, etc. However, it can create a problem for the support-paying spouse who has a fluctuating income.
What advice is helpful to such a spouse?
First, you will likely fare better in settlement than in litigation. When parties engage in settlement negotiations, they have much more control of the process and have the ability to be creative and flexible in crafting a resolution that best fits their unique circumstances. For example, in settlement negotiations, in order to take into account income which varies over the course of the year, the parties could agree to base support on an average or percentage of the earner’s actual monthly income.
Second, if you are the main earner in the family, be transparent with your spouse. Help her or him understand your future income trajectory by making early and voluntary disclosure of any contracts or other documents which affect your income as well as spreadsheets of how your income has varied over the past several years. If you both have full access to all relevant information, the possibility of reaching agreement as to how support is to be structured will be significantly increased.
Finally, find an experienced family law attorney who has broad knowledge about and is comfortable with a complicated financial picture and who seeks your input as to what makes sense for your family.
If you are forthcoming about all aspects of your income, you will increase the likelihood that you and your spouse can enter into an agreement under which you are treated fairly, irrespective of your fluctuating income stream.